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Tax Law Blog

Red flags in taxes may lead to audits from the IRS

People have their own way of filing their taxes. Some file as soon as they have all of their information, while others wait until the last possible day to get their taxes in. Along these same lines, some go to a tax preparer, while others electronically file on their own at home. Either way though, whether someone filed as soon as possible, or spent April 15 running around their home looking for that one last 1099 form, experts estimate that individual filers have roughly a one in 100 chance of ending up being audited. 

At this point, with it being April 21 already, for many, tax time is done. They have filed and considered themselves done with the tax process for the year. However, with the one in 100 experts' estimate to CNN, some may find themselves being contacted by the IRS. Even just hearing the word audit is enough to make almost anyone panic, even if nothing was intentionally done wrong. 

Despite budget cuts, IRS will continue to scrutinize small business owners and wealthy

With the 2013 tax year now in American's rearview mirror, agents from the Internal Revenue Service are busy analyzing data to ensure the numbers match up. In cases with the IRS identifies discrepancies between an individual's reported income and claimed income, the IRS may choose to perform an audit. Thankfully for most Americans, today the chances of an individual taxpayer being selected for an IRS audit are less than one percent.

Recent revelations related to the IRS's admittance of biasness against conservative groups coupled with ongoing political backlash over the Obama administration’s Affordable Care Act have resulted in deep cuts in the IRS's annual budget. As a result, IRS commissioner John Koskinen recently admitted the agency has been forced to make spending cuts including those to funds previously used to conduct IRS investigations and enforcement procedures. 

Youngest Baldwin brother pays off $400,000 tax debt

Many Ohio residents are likely familiar with the famous Baldwin brothers. Recently the youngest of the Baldwin acting clan, Stephen, gained media attention for a very different reason. According to officials from the Internal Revenue Service, Baldwin failed to file and pay his state taxes for the tax years 2008 through 2010. As a result, he faced criminal charges for failing to pay some $400,000 in tax debt.

To avoid being sentenced to prison in March 2013, Baldwin pleaded guilty to one felony count of failing to pay taxes. However, rather than sentencing the actor to spend time behind bars, the judge overseeing the case provided Baldwin the opportunity to repay his tax debt.

Tardy taxpayers advised to file for extension

It's been a chaotic and stressful last few months. Your father passed away in January and you welcomed your third child into your family in February. On top of everything, your demanding job asked you to return to work after only six weeks of maternity leave and you've been struggling with the loss of your loved one while also trying to tend to your family and meet important work deadlines. One day, you and your husband look at the calendar and realize that it's April 10 and taxes are due in a mere five days.

Individuals who find themselves in a similar situation are likely to panic. Those who take no action and miss the April 15 deadline will be subject to fines and penalties including a late filing fee which is factored each month at five percent of a taxpayer's total unpaid tax balance. For those who have yet to complete or even begin gathering important tax documents, it's wise to file for a tax extension.

Taxpayers advised to file returns on time

No one likes having to file or pay taxes, yet failing to do so can have many negative consequences. The April 15 IRS tax deadline is quickly approaching, which means individuals and small business owners only have roughly one-and-a-half weeks to gather necessary financial records to complete and file taxes. So what happens if an individual isn’t able to meet the April 15 deadline? While the IRS often accepts formal requests for an extension, it does not treat those who simply fail to file kindly.

While it seems amazing that the IRS is able to discover and keep track of the financial incidentals of every U.S. citizen, it can and does. Those who fail to file their taxes on time therefore, should be assured that the IRS knows and won't forget. What's more, failing to file or pay one's taxes often leads to fines, penalties and even criminal charges related to tax crimes such as tax evasion.

IRS announces it will treat bitcoins as property, not currency

Ohio residents have likely heard about or may have even used bitcoins. A virtual currency that originated in 2009, bitcoins are now accepted by many retailers and effectively allow an individual to purchase goods and services anonymously. In recent years, bitcoins have grown in popularity and the anonymity the virtual currency affords users has drawn the attention of and concern from government and law enforcement officials who contend the globally recognized virtual currency is readily used by individuals who are attempting to evade paying taxes or purchase and sell illegal drugs.

Until recently there has been confusion over how the government classified bitcoins. Last week the Internal Revenue Service announced it will treat bitcoins as property and not actual currency.

Small business owners and tax deductions: part 2

According to the U.S. Small Business Administration, more than 50 percent of all small business owners operate out of a home office. In our last blog post we discussed some home office-related tax deductions for small business owners. In this post, we'll continue to look at other types of tax deductions that small business owners may be able to take advantage of.

Business owners who have a bored teenager who is looking to earn some extra money this summer may be able to benefit both personally and financially. Hiring one's own child may not only keep a teen out of trouble, but also allow him or her to avoid paying income tax while mom or dad is able write off the child's salary as a business expense. Additionally, once an official employee, a child can open a Roth IRA and start saving for the future.

Small business owners and tax deductions

With tax season in full swing, individuals who take on the task of completing their own taxes are often confused by ever-changing tax codes, regulations and rules. This is often especially true for small business owners for whom tax season is often accompanied by anxiety and stress related to whether financial records are accurate and deductions pass the IRS's sniff test.

In the next two blog posts, we'll take a look at deductions small business owners would be wise to take advantage of as well as how to ensure IRS rules are being followed while doing so. While most small business owners know they are allowed to take advantage of deductions related to a home office and business-related travel expenses, few may realize they can also take deductions for retirement contributions and for employing one's own child.

Advice for individuals who are unable to pay their taxes

The recent economic depression set off a chain reaction of events the subsequently resulted in many individuals and small business owners having financial difficulties. Individual's savings and retirement accounts were wiped clean and many small business owners were either forced to close or find other ways to make ends meet.

While the economy is rebounding, many are still attempting to get back on their feet which can make tax season and the discovery that one actually owes money to the IRS that much more upsetting. So what's an individual or small business owner to do if he or she owes more than they can afford to pay in taxes?

Consistency may be key to surviving an IRS inquiry or audit

The weeks leading up to the April 15 tax deadline are often a time in which both individuals and business owners scramble to organize financial information and prepare tax-related documents. For many, in addition to ensuring the tax deadline is met, extra effort is made in an attempt to avoid an IRS audit.

Every year during tax season, tax and financial professionals dole out advice on steps both individuals and small business owners can take to avoid drawing the IRS's attention. While much of the advice provided makes sense and can't hurt to follow, perhaps the best way to avoid having problems with the IRS is to always be prepared in the event an audit does occur.

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Robert J. Fedor, Esq., L.L.C.
23550 Center Ridge Road, Suite 107
Westlake, OH 44145

Phone: 440-250-9709
Toll Free: 800-579-0997
Fax: 440-250-9714
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Robert J. Fedor, Esq., L.L.C.
542 S. Dearborn St., Suite 660
Chicago, IL 60605
Phone: 312-836-9096
Toll Free: 800-579-0997
Fax: 312-697-1384
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